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Developments in Credit to the Private Sector in Central and Eastern European EU Member States: Emerging from Financial Repression — A Comparative Overview

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This article provides an overview of developments in credit to the private sector in Central and Eastern European EU Member States in the period from 1999 to 2004. It discusses the main determinants of credit expansion, explores its impact on economic developments and examines policy implications. The paper also reviews how the issue of credit growth has featured in the monetary integration process of new Member States so far. The analysis shows that (i) lending to the private sector has grown dynamically in most but not all countries under review, (ii) loans to households have risen dynamically in all countries and (iii) foreign currency lending has been sizeable, in particular in countries with pegged exchange rates. Credit growth has been promoted by macroeconomic stabilization, comprehensive reforms and privatization in the financial sector and by the introduction of market institutions and legal reforms. Financial depth in most new Member States continues to be comparatively low, which suggests that credit growth will tend to be high, especially over the medium term. In those countries that have recorded fast and persistent private sector credit growth in recent years, current account deficits have moved above levels that can be deemed sustainable over a longer period of time. Our analysis thus corroborates the case for keeping macroeconomic vulnerabilities in check by containing domestic demand growth and current account deficits to sustainable levels over the medium term in the countries concerned.

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  • Peter Backé, 2005. "Developments in Credit to the Private Sector in Central and Eastern European EU Member States: Emerging from Financial Repression — A Comparative Overview," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 83-109.
  • Handle: RePEc:onb:oenbfi:y:2005:i:2:b:2
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    File URL: https://www.oenb.at/dam/jcr:658c57f0-bea8-49fe-8654-b3a83813e562/feei_2005_2_special_focus_2_tcm16-33488.pdf
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    1. John P. Bonin & Paul Wachtel, 2005. "Dealing with Financial Fragility in Transition Economies," World Scientific Book Chapters,in: Systemic Financial Crises Resolving Large Bank Insolvencies, chapter 10, pages 141-157 World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Elena Pelinescu & Petre Caraiani, 2012. "The Credit Policy And Its Impact On The Romanian Economy," New Trends in Modelling and Economic Forecast (MEF 2011), ROMANIAN ACADEMY – INSTITUTE FOR ECONOMIC FORECASTING;"Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 1(1), pages 54-68, January.

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